ECRI’s Achuthan discusses how markets remain focused on the “news of the day,” which has been dominated by twists and turns in the trade war and shifts in Fed dovishness. For the most part this ignores the elephant in the room – the economic cycle.

Mobile users can view the interview here.

Five months ago on CNBC’s Trading Nation ECRI warned of the heightened risk of stock price corrections, because the economy was in a growth rate cycle downturn.

A trading chart suggests stocks face a heightened risk of a 10-20% correction  https://t.co/CiGU1Avinw

— Trading Nation (@TradingNation) September 1, 2018

Both calls – the slowdown in economic growth and the related risk of stock price corrections – have been vindicated.

Even earlier, ECRI had made an inflation cycle downturn call, which we also shared publicly before the last rate hike, having first shared it with our clients last summer, while oil prices were still on the rise.

"With inflation ticking lower, [the Fed] should consider stopping. But fixated on a 49-year low in the jobless rate and a 9 ½-year high in wage growth, it's not clear that they will stop just yet," https://t.co/1CPtiFPnCP

— Lakshman Achuthan (@businesscycle) December 13, 2018

Since then, CPI inflation has clearly rolled over and has dropped to a 17-month low.  

So the good news is that the Fed finally blinked!

Today Powell harkened back to Fed’s year-long 2016 rate-hike pause that began months after ECRI warned that “rate hike plans are on a collision course with the economic cycle.” As Yogi Bera said, it’s déjà vu all over again. Read more: https://t.co/GxPmDB9rPc pic.twitter.com/K2cnEb3NJs

— Lakshman Achuthan (@businesscycle) January 4, 2019

The not-so-good news is that a soft-landing is not yet assured, and therein lies the risk to stock prices.

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